Our recent brush with financial catastrophe underscores the need to lay out effective risk management guidelines for financial institutions. On June 30th, 2009, The Interagency Guidance on Funding and Liquidity Risk Management was issued by The Office of the Comptroller of the Currency (OCC), The Board of Governors of the Federal Reserve, The Federal Deposit Insurance Corporation (FDIC), and The National Credit Union Administration (NACUA) to help regulate funding and liquidity risk issues and step up industry liquidity risk management (LRM) practices. The goal of the guidance is to encourage bank liquidity risk management practices to be more similar to the liquidity risk principle issued by the Basel Committee on Banking Supervision (BCBS) in 2008. Currently, the BCBS principles are primarily for large institutions; however, when the new guidance is finalized, it will apply to all domestic financial institutions which would include banks, thrifts, and credit unions.
This guidance aims to be more direct with respect to liquidity risk management practices including citing the absence of a good LRM program as the basis of the declaration of an unsafe and unsound financial practice. Financial institutions will be required to have a complete and thorough risk management program in place which identifies measures and controls risk. Firms will be required to have realistic and thorough cash flow projections with a diverse asset portfolio and solid capital reserves.
When, what and how these new regulations will affect the industry and individual firm is the subject of much discussion. The Knowledge Group has assembled a group of key thought leaders and experts to help you understand the impact of this new guidance and how it may impact your firm. Join this live webcast and you will leave with a solid understanding of the new guidance making you a highly valued member of your firm’s liquidity risk management practice.
Course Level: Intermediate
Prerequisite: None
Method Of Presentation: Group-Based-Internet
Developer: The Knowledge Conference
Recommended CLE/CPE Hours: 2.0
Important Note: Your State Bar or Accounting Board will make the final determination with respect to continuing education credit. If you are applying for CLE credit in Texas you must register 20 days before the event date or you will not be able to obtain CLE credit.
Advance Preparation: Print and review course materials
Course Code: 093928
Kyle Hadley
Chief of the Examination Support Section, Capital Markets Branch
Mary Frances Monroe
Vice President, Office of Regulatory Policy
Peter B. Marshall
Financial Services Risk Management
Kyle Hadley, Chief of the Examination Support Section, Capital Markets Branch, Federal Deposit Insurance Corporation
- History of international and domestic liquidity guidance
- Past regulatory oversight
- Modern perspective
- Overview of the WGL and BCBS Guidance
- Overview of September 2008 Sound Principles
- BCBS WGL issued guidance in September 2008.
- The guidance covers 17 principles of sound liquidity risk management and supervision.
- All major countries have agreed to implement the principles.
- Principles are basis for proposed U.S. interagency guidance.
- Overview of U.S. Supervisory Liquidity Process – Proposed Interagency Guidance (FIL-37-2009)
- Federal banking agencies and NCUA issued proposed guidance in June 2009 for public comment.
- Where appropriate, conforms to BCBS sound principles.
- Highlights of the proposed guidance:
- Appropriate strategies, policies, procedures and limits;
- Comprehensive liquidity risk measurement and monitoring systems;
- Active management of intraday liquidity and collateral;
- Monitor and maintain liquidity at both consolidated and legal entity levels;
- Diverse mix of existing and potential future funding needs;
- Adequate levels of highly liquid marketable securities; and
- Comprehensive CFP
- Time horizon for release of final rule – 1Q2010
- Overview of December 2009 International Framework for Liquidity Risk Measurement, Standards and Monitoring
- Regulatory Standards for Liquidity Risk Measurement
- Liquidity Coverage Ratio
- Net Stable Funding Ratio
- Monitoring Tools – the minimum types of information used to monitor the liquidity risk profiles of institutions:
- Contractual Maturity Mismatch
- Concentration of Funding
- Available Unencumbered Assets
- Market-Related Monitoring Tools
Peter B. Marshall, Financial Services Risk Management, Ernst & Young LLP
Corporate governance and risk tolerance - the focus on survival horizon, sufficient liquidity buffer and contingency plans. I would discuss the migration to using the 30-day survival horizon the size the liquidity buffer, as well as longer-term survival horizon under less severe stress tests to evaluate and validate contingency funding plans and strategic capital and budgeting plans
Liquidity risk measurement and metrics - enhanced stress testing and linking the interagency principles with the elements of the new BCBS proposal. I would expect to discuss issues such as the need for entity level liquidity reporting and stress testing, as well as a comprehensive, top of the house view, as well as the metrics the organizations are converging on such as liquidity coverage, survival horizon, stable funding / structural liquidity, and investor concentration. I also plan to discuss the need for integrated and dynamic balance sheet analyses to understand the interplay between liquidity, capital, earnings and solvency.
Funds transfer pricing and liquidity premiums - I plan on discussing the importance of effective pricing of liquidity, the use of FTP to drive behavior, as well as key challenges, such as lack of granular data, the need for better tools to calculate and report entity level attribution and the approaches to influence business level decision making
Mary Frances Monroe, Vice President, Office of Regulatory Policy, American Bankers Association
- There is a strong need for better tools and methodologies to understand group-wide liquidity risks
and dependencies, recognizing that the aggregation of group-wide risk is
not a simple additive process.
- Support for industry-regulator collaboration
- Need for industry input into domestic and international efforts on risk aggregation
- There is a compelling need to advance work on understanding the interactions and dependencies
among liquidity risk, on the one hand, and other risks, including but not
limited to credit, market, and operational risks.
- Again, this should be conducted with significant industry input into domestic and international efforts
- Liquidity risk is highly idiosyncratic. To that end, it is important to incorporate a high degree of
flexibility into the implementation of the guidance in order to reflect different
business models, local markets, changes in market conditions, and the impact of other risks, particularly credit, market, and operational risks, on liquidity risk.
- Flexibility is important both with respect to qualitative and quantitative (e.g., metrics) measures of liquidity risk and assessments of liquidity risk management
- Reflecting the idiosyncratic nature of liquidity risk and the manner in which the sources and impacts of liquidity risk may manifest themselves, it is important to allow banks a
significant degree of flexibility with respect to the development of contingency funding plans and stress tests.
- Finance Teams
- Risk Officers
- General Counsel
- Senior Executives
- Banking attorneys and consultants
This is a must attend event to anyone interested in New Interagency Guidance for Liquidity Risk Management
- New guidance explained by the most qualified key leaders & experts
- Hear directly from key regulators & thought leaders
- Interact directly with panel during Q&A